SETTLEMENT AGREEMENT

D.                                     Bruce Boise filed a qui tam action in the United States District Court for the Eastern District of Pennsylvania captioned United States of America; the States of California, Delaware, Florida, Hawaii, Illinois, Massachusetts, Nevada, New Mexico, Tennessee, Texas, Virginia, the District of Columbia, and New York; ex rel. Bruce Boise v. Cephalon, Inc. , Civil Action No. 04-4401.

E.                                       Michael Makalusky filed a qui tam action in the United States District Court for the District of Massachusetts captioned United States of America ex rel. Michael Makalusky v. Cephalon, Inc., that action was transferred to the United States District Court for the Eastern District of Pennsylvania as Civil Action No. 05-1904.

The qui tam actions identified in Paragraphs (B) through (E) will be referred to collectively as the “Civil Actions.”

F.                                       Cephalon has entered into a plea agreement with the United States Attorney for the Eastern District of Pennsylvania and has agreed to plead guilty, pursuant to Fed.R.Crim.P. 11 to an Information to be filed in United States v. Cephalon, Inc. (the “Federal Criminal Action”) that will allege that Cephalon introduced drugs into interstate commerce and caused the introduction into interstate commerce of drugs that were misbranded within the meaning of 21 U.S. C. §§ 331(a), 333(a)(1) and 352(f)(1), in that Actiq, Gabitril and Provigil were marketed for medical indications that were not approved by the FDA.

G.                                      Cephalon has entered into or will be entering into separate settlement agreements, described in Paragraph 1(b) below (hereinafter referred to as the “Medicaid State Settlement Agreements”) with the 50 states and the District of Columbia

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(hereinafter referred to as the “Medicaid Participating States”) in settlement of the Covered Conduct;

H.                                     The United States and the Medicaid Participating States allege that Cephalon caused claims for payment for Actiq, Gabitril and Provigil to be submitted to the Medicaid Program, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396v (“the Medicaid Program”);

I.                                          The United States further alleges the Cephalon caused claims for payment for Actiq, Gabitril and Provigil to be submitted to the Medicare program, Title XVIII of the Social Security Act, 42 U.S. C. §§ 1395-1395ggg; the TRICARE program, 10 U.S.C. § 1071-1109; the Federal Employees Health Benefits Program (“FEHB”), 5 U.S.C. §§ 8901-8914; the Federal Employees’ Compensation Act Program; the Postal Service Workers’ Compensation Program; and the Energy Employees’ Occupational Illness Compensation Program; and caused purchases of Actiq, Gabitril and Provigil by the Department of Veterans Affairs (“DVA”); the Defense Logistics Agency (“DLA”); the Bureau of Prisons (“BOP”) and the Public Health Service Entities.

J.                                         The United States and the Medicaid Participating States contend they have certain civil claims against Cephalon, as specified in Paragraph 2 below, for engaging in the following conduct concerning the marketing, promotion and sale of Actiq, Gabitril and Provigil (hereinafter referred to as the “Covered Conduct”):

Between January 1, 2001 and December 31, 2006 for Actiq and Provigil and between January 1, 2001 and February 18, 2005 for Gabitril, Cephalon knowingly and willfully promoted the sale and use of Actiq, Gabitril and Provigil for certain uses for which the Food and Drug Administration had not approved (i.e. “unapproved uses”). The promotion of Actiq, Gabitril and Provigil for these unapproved uses violated the Food Drug and Cosmetic Act

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21 U.S.C. § 331 (a), 21 U.S.C. § 352(f). In addition, certain of these unapproved uses were not medically accepted indications for which the United States and State Medicaid programs approved reimbursement. As a result of Cephalon’s conduct, Cephalon knowingly caused false and/or fraudulent claims to be submitted to the United States and the Medicaid programs and caused the Department of Veterans Affairs, the Defense Logistics Agency, the Public Health Entities and the Bureau of Prisons to purchase Actiq, Gabitril and Provigil for unapproved uses.

K.                                     The United States also contends that it has certain administrative claims against Cephalon as specified in Paragraphs 4-6 below, for engaging in the Covered Conduct.

L.                                       This Agreement is made in compromise of disputed claims. This settlement agreement is neither an admission of facts nor liability by Cephalon nor a concession by the United States that its claims are not well founded. With the exception of such admissions that are made in connection with any guilty plea by Cephalon in connection with the Federal Criminal action, Cephalon expressly denies the allegations of the United States and the Relators as set forth herein and in the Civil Actions and denies that it has engaged in any wrongful conduct in connection with the Covered Conduct. Neither this agreement, its execution, nor the performance of any obligation under it, including any payment, nor the fact of settlement, is intended to be, or shall be understood as, an admission of liability or wrongdoing, or other expression reflecting upon the merits of the dispute by Cephalon.

M.                                  To avoid the delay, expense, inconvenience, and uncertainty of protracted litigation of these claims, the Parties mutually desire to reach a full and final settlement as set forth below.

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III.           TERMS AND CONDITIONS

1.                                        Cephalon agrees to pay to the United States and the Medicaid Participating States, collectively, the sum of Three Hundred Seventy-Five Million Dollars ($375,000,000), plus accrued interest in the amount of 4.0% per annum from January 1, 2008, and continuing until and including the day before complete payment is made (the “Settlement Amount”). Payments shall be made as follows:

(a)                                   Cephalon shall pay to the United States the sum of Two Hundred Fifty-Six Million, Two Hundred Ninety-Eight Thousand, Five Hundred and Seventeen Dollars ($256,298,517), plus accrued interest in an amount of 4.0% per annum from January 1, 2008, and continuing until and including the day before complete payment is made (the “Federal Settlement Amount”). The Federal Settlement Amount shall be paid by electronic funds transfer pursuant to written instructions to be provided by the United States. Cephalon agrees to make this electronic funds transfer no later than seven days after the Effective Date of this Agreement.

(b)                                  Cephalon shall pay to the Medicaid Participating States the sum of One Hundred Sixteen Million, Eight Hundred Thirty-Three Thousand, Four Hundred and Fifty-Five Dollars ($116,833,455), plus interest accrued thereon at a rate of 4.0% per annum from January 1, 2008, continuing until and including the day before complete payment is made (the “Medicaid State Settlement Amount”), under the terms and conditions of the Medicaid State Settlement Agreements that Cephalon will enter into with the Medicaid Participating States. This Medicaid State Settlement Amount shall be paid by electronic funds transfer pursuant to written payment instructions from the negotiating team for the Medicaid Participating States.

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(c)                                   Cephalon shall pay to the Public Health Service Entities the sum of One Million, Eight Hundred Sixty-Eight Thousand and Twenty-Eight Dollars ($1,868,028), plus interest accrued thereon at a rate of 4.0% per annum from January 1, 2008, continuing until and including the day before complete payment is made (the “Public Health Settlement Amount”) as provided in the written instructions agreed to by the parties. Cephalon shall distribute each affected Public Health Service entity its proportionate share of the Public Health Settlement Amount within 60 days of the Effective Date of this Agreement.

(d)                                  Contingent upon the United States receiving the Federal Settlement Amount from Cephalon, the United States agrees to pay, as soon as feasible after receipt, Forty-Six Million, Four Hundred Sixty-Nine Thousand, Nine Hundred Seventy-Eight Dollars ($46,469,978) to Relator Paccione, plus the pro rata share of the actual accrued interest paid to the United States by Cephalon on the amount set forth in paragraph 1(a) above. (“Relators’ Share”).

(e)                                   Relators have entered into a separate agreement concerning the allocation of the Relators’ Share among themselves.

2.                                        Subject to the exceptions in Paragraph 7 below (concerning excluded claims), in consideration of the obligations of Cephalon in this Agreement, conditioned upon Cephalon’s full payment of the Settlement Amount, and subject to Paragraph 17 below (concerning bankruptcy proceedings commenced within 91 days of the Effective Date of this Agreement or any payment made under this Agreement), the United States (on behalf of itself, its officers, agents, agencies, and departments) agrees to release Cephalon, its predecessors, affiliates, divisions, parents, subsidiaries,

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successors and assigns, and their current and former directors, officers and employees from any civil or administrative monetary claim the United States has or may have for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-12; the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; any statutory provision applicable to federally-funded programs in this agreement for which the Civil Division of the Department of Justice has actual and present authority to assert and compromise pursuant to 28 C.F.R. Part O, Subpart I, Section 0.45(D) (1995) or the common law theories of payment by mistake, unjust enrichment and fraud.

3.                                        Subject to the exceptions in Paragraph 7 (concerning excluded claims), below, in consideration of the obligations of Cephalon in this Agreement, conditioned upon Cephalon’s full payment of the Settlement Amount, Relators, for themselves and for their heirs, successors, attorneys, agents, and assigns, agree to release Cephalon, its parents, subsidiaries, related entities, officers, directors, trustees, agents, servants, employees, representatives, attorneys, consultants, successors, heirs, executors, administrators and assigns, individually and collectively, current or former, from any civil monetary claim the United States has or may have for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733, but expressly reserve claims they may assert under 31 U.S.C. § 3730(d) for expenses, attorney fees and costs.

4.                                        In consideration of the obligations of Cephalon set forth in this Agreement, and the Corporate Integrity Agreement entered into between OIG-HHS and Cephalon, conditioned on Cephalon’s payment in full of the Settlement Amount, and subject to Paragraph 17 below (concerning bankruptcy proceedings commenced within

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91 days of the Effective Date of this Agreement or any payment under this Agreement), the OIG-HHS agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from the Medicare, Medicaid, or other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f)) against Cephalon under 42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law), or 42 U.S.C. § 1320a-7(b)(7) (permissive exclusion for fraud, kickbacks or other prohibited activities), for the Covered Conduct, except as reserved in Paragraph 7, (concerning excluded claims), below, and as reserved in this Section.

In consideration of the obligations of Cephalon set forth in this Agreement, and the Corporate Integrity Agreement entered into between OIG-HHS and Cephalon, conditioned on Cephalon’s payment in full of the Settlement Amount, and subject to Paragraph 17 below (concerning bankruptcy proceedings commenced within 91 days of the Effective Date of this Agreement or any payment under this Agreement), the OIG-HHS agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from the Medicare, Medicaid, or other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f) against Cephalon under 42 U.S.C. § 1320a-7(b)(1) permissive exclusion for conviction relating to fraud) or 42 U.S.C. § 1320a-7(b)(3) (permissive exclusion for misdemeanor conviction relating to controlled substance), based on the Federal Criminal Action referenced in Paragraph F, except as reserved in paragraph 7 (concerning excluded claims), below, and as reserved in this Section.

The OIG-HHS expressly reserves all rights to comply with any statutory obligations to exclude Cephalon from the Medicare, Medicaid, or other Federal health

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